Internal Revenue Service (IRS): Tax Collection, Audits, & Penalties

Taxes can be confusing, but understanding the Internal Revenue Service (IRS) is the first step to managing them confidently. The Internal Revenue Service (IRS) isn’t just a tax collector—it’s the backbone of the U.S. tax system, ensuring that everyone contributes their fair share.

Table of Content

• What is the Internal Revenue Service (IRS)?
• History of the Internal Revenue Service (IRS)
• How the Internal Revenue Service (IRS) Collects and Manages Taxes
• How to File Your Tax Return
• Understanding Internal Revenue Service (IRS) Audits
• Contacting the IRS: Phone, Mailing Addresses, and Online Help
• Internal Revenue Service (IRS) Penalties and Consequences
• Handling Unpaid Penalties and Interest
• Finding and Visiting IRS Taxpayer Assistance Centers (TACs)
• Conclusion
• FAQs

What is the Internal Revenue Service (IRS)?

The Internal Revenue Service (IRS) is a division of the United States Treasury Department that implements the Internal Revenue Code (IRC), manages federal tax laws, and collects federal taxes from U.S. citizens. The IRS collects gift, excise, estate, and income taxes and conducts routine audits to ensure that taxpayers follow tax laws.

Key Takeaways

• The U.S. government organization in charge of tax enforcement and federal tax collection is the Internal Revenue Service (IRS).
• The IRS’s primary function is to collect individual and corporate income taxes.
• The Internal Revenue Service (IRS) audits taxpayers at random or after detecting irregularities in their tax returns.

History of the Internal Revenue Service (IRS)

The Office of Commissioner of Internal Revenue was established by President Abraham Lincoln in 1862 to handle the collection of taxes levied to fund the Civil War. In 1913, Congress was granted the authority to enact income tax laws, paving the way for the Internal Revenue Bureau to be established. In the 1950s, the Internal Revenue Service replaced the original name of the agency.

How the Internal Revenue Service (IRS) Collects and Manages Taxes

Payroll Deductions and Quarterly Payments

The IRS collects estimated taxes from wage earners throughout the year, through payroll deductions and quarterly estimated tax payments from businesses based on quarterly tax filings

Annual Tax Filing

An annual filing balances the amounts paid by each individual and business against the actual amounts owed. Normally, it must be received by April 15th for the prior tax year.

Tax Refunds

The IRS refunds taxes if the taxpayer overpaid. Payment for any outstanding balances must be included with the yearly tax return. Federal tax laws are explained on the IRS website.

Tax Compliance

US taxpayers are required to pay taxes and comply with the tax laws that Congress has passed.

How to File Your Tax Return

Filing Methods

Taxpayers can use consumer-oriented tax preparation software to electronically file their returns or mail their returns. A taxpayer may choose to hire tax professionals like accountants or tax preparers.

Common Forms

Most people use Form 1040 and 1040-SR to file their taxes in the U.S. In 2023, the IRS processed 162.0 million individual tax returns, with refunds totaling $105.7 million (or $334.9 billion).

Supporting Documents

A lot of people fill out and affix extra forms and documents to back up the figures they enter on the primary forms—W-2 and 1099—that come from the companies that give the taxpayer money. Schedule D reports capital gains from the sale of stocks, real estate, and other taxable income sources, and Schedule A details the taxpayer’s claimed tax deductions.

Corporate Tax Forms

To report their income and tax liabilities, corporations use Form 1120: U.S. Corporation Income Tax Return. Depending on the kind of corporation, the form can take several different forms, such as:

• Form 1120-C: Cooperative Associations’ U.S. Income Tax Return
• Form 1120-F: Foreign Corporation’s U.S. Income Tax Return; 
• Form 1120-H: Homeowners Association’s U.S. Income Tax Return
• Form 1120-S: U.S. Tax Return for a S corporation 
• Form 1120-L: Income Tax Return of the United States Life Insurance Company

Understanding Internal Revenue Service (IRS) Audits

Audit Selection

As part of its enforcement mission, the IRS audits a certain percentage of income tax returns every year. The agency chooses taxpayers to audit at random or specifically targets those whose returns are connected to other taxpayers under audit. Although there isn’t a single element that decides who receives an IRS audit each year, the following warning signs could lead to an investigation:

• Incorrect Income Reporting: Not disclosing the correct amount of income
• Unusual Deductions: Claiming more deductions than usual, particularly those connected to business
• High Charitable Contributions: Giving a disproportionately large amount to charity in relation to one’s income
• Rental Real Estate Losses: Making a loss claim for rental real estate

Audit Process

At the beginning of the auditing process, an auditor reviews the return. The auditor has two options:

Approve the Return: Either approve the return or ask for an additional examination by a team of inspectors. The taxpayer is notified via mail in the latter scenario.

Audit Locations: The audit entails going over documentation and can be done in person at an IRS office, by mail, or at another location, like the taxpayer’s house, place of business, or accountant’s office.

Contacting the IRS: Phone, Mailing Addresses, and Online Help

General IRS Contact Details

The IRS website has a list of mailing addresses for the IRS. The IRS’s phone number is (800) 829-1040, and it is open from 7 a.m. to 7 p.m. local time, Monday through Friday. There are additional toll-free numbers available for business and other purposes. Try the IRS website’s Interactive Tax Assistant for online help. You can also schedule an in-person appointment at a nearby IRS office.

Specific Tax Topics Contact Numbers

Here are the numbers for a variety of tax topics:

Internal Revenue Service (IRS) Penalties and Consequences

Penalties for Late Filing and Inaccurate Information

An organization will be penalized $20 per day for each day the required return is not filed by the deadline (including any extensions of time). If the organization fails to include any information from the return or provides inaccurate information, the same penalty will be applied.

Responsibility Despite Using a Paid Preparer

The organization still has to file an accurate and complete return even if it uses a paid preparer.

Maximum Penalty Limits

The maximum penalty for any return is typically equal to $5 percent of the organization’s annual gross receipts less $10,500. An organization with gross receipts of more than $1,084,000 for the year is subject to a penalty of $105 per day, up to a maximum of $54,000, for returns that must be filed by 2021. An organization with gross receipts of more than $1,094,500 for the year is subject to a penalty of $105 per day, up to a maximum of $54,500, for returns that must be filed by 2022.

Individual Penalties for Non-Compliance

If the organization is subject to this fine, the IRS may establish a deadline for filing the return of accurate information. A $10 daily penalty may be imposed on any member of the organization who does not file the return by that date. A $5,000 maximum fine may be levied against any person who neglects to file a return.

Penalty Abatement for Reasonable Cause

If there is a legitimate reason why the organization failed to file on time, accurately, or completely, the penalties for failing to file may be reduced.

Automatic Revocation of Tax Exemption

Note that automatic revocation happens if an exempt organization fails to file an annual electronic notice (Form 990-N, or e-Postcard) or an annual return (Form 990, 990-EZ, or 990-PF) for three years in a row. The organization’s federal tax exemption is automatically revoked under the law.

Penalties for not Paying Taxes on Time

Taxpayers who fail to pay their taxes on time may be subject to penalties. The IRS levies penalties for many infractions, such as failing to:

• Make sure your taxes are filed on the plan.
• Make timely and appropriate payments for any taxes you owe.
• Make sure your return is accurate.
• Provide timely and accurate information returns that are filed.

Handling Unpaid Penalties and Interest

Interest on Unpaid Penalties

If you don’t pay the penalty in full, we might apply interest. Until you pay the entire amount you owe, we impose monthly penalties.

Recognize the various kinds of penalties, what to do if you receive one, and how to avoid receiving one.

Types of penalties

Here are some of the fines for which we issue letters and notices:

• Information returns are applied to taxpayers who fail to correctly file or provide their payee statement or information return by the deadline.
• If you fail to file your tax return by the deadline, it is considered a failure to file.
• If you fail to pay the taxes you owe by the deadline, it is considered a failure to pay.
• When you claim credits or deductions for which you are ineligible, or when you don’t report all of your income, these situations are considered accuracy-related.
• When you file an incorrect claim for a refund or credit of income tax for a sum that is too large and there is no valid reason for it, you will be assessed an error penalty.
• When you fail to accurately or on time pay employment taxes, you are considered to have failed to deposit.
• Tax return preparers who commit infractions are subject to tax preparer penalties.
• When your bank refuses to accept your check or another form of payment, it is referred to as an honored check or other form of payment.
• When you fail to pay estimated tax for a corporation on time or with accuracy, it is considered underpayment of estimated tax by corporations.
• Individuals who fail to pay their estimated taxes on time or accurately are considered to be underpaying.
• Certain taxpayers who fail to accurately and on time report financial activity with foreign sources are subject to international information reporting requirements.

Interest on a penalty

Penalties are subject to interest charges. Depending on the kind of penalty, there are different start and end dates for interest. Interest is added to your loan balance until it is paid off in full.

Pay a Penalty

To avoid additional fines and interest in the future, send them payment or pay your taxes in full.

Remove or Reduce a Penalty

If you behaved in good faith and can provide proof of a legitimate reason for your inability to pay your taxes, we might be able to waive or lower some penalties. They are legally unable to waive or reduce interest until the penalty has been waived or reduced.

Avoid a Penalty

Penalties can be avoided by accurately filing your returns, paying your taxes on time, and supplying any information returns on schedule. If this isn’t possible, you can request a payment plan or an extension of the filing deadline.

Request an Extension of Time for Filing

Request an extension of time to file if you require additional time to complete your tax return preparation. You do not now have an extension to make your payment. You can make payments gradually with the help of a payment plan.

Apply for a Payment Plan

Pay what you can now and request a payment plan if you are unable to pay your taxes or penalty in full on time. Establishing a payment plan may help you avoid penalties in the future.

Note on IRS Form 990-Series Returns

Note: Beginning in 2018, the IRS has been returning Form 990-series returns that are incorrect or incomplete to the filing organization along with letters 2694C, 2695C, or 2696C. When an organization receives one of these letters, it should abide by the instructions provided. Moreover, observe What occurs if a schedule, information, or the correct return is missing from my Form 990? To avoid penalties, return an accurate and complete return within ten days of the letter’s date. As soon as we receive a complete and accurate return, we consider your return filed.

Finding and Visiting IRS Taxpayer Assistance Centers (TACs)

Document Inspection for ITIN Applications

The original documents and certified copies from the issuing agencies needed to apply for and renew Individual Taxpayer Identification Numbers (ITINs) are available for inspection by IRS Taxpayer Assistance Center (TAC) staff members. Documents submitted by primary, secondary, and dependent applicants may be examined and confirmed. After your appointment, you will receive your documents back.

Scheduling Appointments

IRS TACs are appointment-only. Make an appointment by giving 844-545-5640 a call. Visit IRS.gov to view all services offered at any office and to obtain directions. Speak with Your Local Office.

Language and Accessibility Services

Every office has a professional foreign language interpretation service available over the phone in multiple languages. To schedule an appointment, deaf or hard-of-hearing people can call 800-829-4059, which is a TTY/TDD number.

IRS TAC Locations by State

Conclusion

The Civil War needed money, so the Internal Revenue Service (IRS) was founded. Operating under a budget approved by Congress, the Internal Revenue Service is responsible for enforcing and administering federal tax laws. It is a division of the U.S. Department of the Treasury.

FAQs

What is the Internal Revenue Service (IRS)?

The U.S. government organization in charge of tax enforcement and federal tax collection is the Internal Revenue Service (IRS). The IRS’s primary function is to collect individual and corporate income taxes. The IRS audits taxpayers at random or after detecting irregularities in their tax returns.

How can I get in touch with an IRS agent in person?

Use Where’s My Refund, 800-829-1954 (toll-free), or 800-829-1040 (see telephone assistance for operating hours) to speak with a representative. You will not be able to use the automated systems to start a trace if your return was filed jointly.

How Is the IRS Funded?

Congress approves the IRS’s operating budget. Taxpayer Services, Enforcement, Operations Support, and Business Systems Modernization are the four accounts that make up this. It is not possible to transfer the funds given to any other section. On March 13, 2023, IRS Commissioner Danny Werfel was named as the organization’s 50th commissioner.

What Is the most effective way to File a Tax Return?

Given that 93.8% of taxpayers filed their taxes electronically for the IRS’s fiscal year 2022, this is the most effective method. Page 2 of the Internal Revenue Service’s “2022 Data Book.” While paper returns can still be mailed in, doing so will cause a delay in refunds.

What Are the Chances of Being Audited by the IRS?

In 2022, 0.49% of individual tax returns were audited. 8.5% percent of individuals who made $10 million or more between 2012 and 2020 had their tax returns audited by the IRS. Some individuals may be chosen at random, while others can be caused by problems, like a charitable deduction that exceeds the filer’s reported income.

How you know you owe a penalty

Internal Revenue Service (IRS) notifies you by mail with a notice or letter when we assess a penalty. You will learn about the fine, the basis for the charge, and what to do next from the notice or letter. There is an identification number on these letters and notices. Make sure the details in your letter or notice are accurate. You might avoid paying a fine if you can settle the matter in your letter or notice.

What phone number is 1-800-829-8374?
Tax professionals can contact 800-829-8374 with inquiries regarding accounts or tax law.

Can you go directly to the IRS?

Visit your neighborhood Internal Revenue Service (IRS) Taxpayer Assistance Center (TAC) for in-person assistance. Find the closest Taxpayer Assistance Center. Once you’ve determined what services are offered there, give them a call at 844-545-5640 to make an appointment. Federal holidays are off-limits to IRS offices.

Why is my refund still processing?

Whether the return was filed electronically or on paper, errors could cause delays in processing. missing data. suspicious activity that banks have reported.